Interest in cryptocurrencies is growing, even after Mt. Gox, formerly the largest international bitcoin exchange, filed for bankruptcy in Japan following $473 million in losses. Bitcoin’s resulting drop in value, from a $1,000 high to around $500, should be a reminder that cryptocurrencies are volatile payment systems under which the applicability of existing regulatory and commercial law is unclear.
Because bitcoin is not backed by any government or central bank, banking and financial industry regulations may not apply to bitcoin transactions. For this reason, Federal Reserve chairwoman Janet Yellen testified before Senate that the Federal Reserve lacks regulatory authority over bitcoin. Similarly, the Federal Deposit Insurance Corp. indicated in at least one context that a money transmitter like PayPal is not a bank for federal banking law purposes. Consequently, bitcoin users cannot expect deposit or investment protection from the FDIC or customer protection from the Securities Investor Protection Corp.
